Taxpayers can claim a refundable credit for federal tax paid on fuel used for farm off-highway business use. Common examples for this credit include the use of gas in tractors, combines and other field machinery where the gas was purchased subject to federal tax. In farming, contrary to other business even gas used in licensed vehicles qualifies, to the extent of non-road use.

Records must be maintained which will allow the IRS to verify the amount claimed. The records should include:
· The total number of gallons purchased and used during the period covered by the claim;
· The dates of the purchases;
· The names and addresses of suppliers and amounts purchased from each during the period covered by the claim;
· The purpose for which the fuel was used; and
· The number of gallons used for each purpose.

The current rat of tax per gallon is:
· Gasoline: 18.4 cents (through 9/30/99)
· Gasohol (10%): 13.0 cents (through 9/10/99)
· Diesel fuel and kerosene: 24.4 cents (through 9/10/99)
· Special motor fuels: 18.4 cents (through 9/10/99)
· Aviation fuels (other than gasoline): 21.9 cents (through 3/31/05)

The credit is claimed on Form 4136, Credit for Federal Tax on Fuels. Form 4136 is filed with the taxpayer’s annual tax return. To receive a refund claim can only be filed to claim a refund for excise tax on gasoline and special motor fuel used in a farming operation. This claim can be filed on a quarterly basis for any of the first three quarters of the year.

The credit or refund received must be reported as income on Schedule F, line 10-other income, if a deduction was taken on the tax return for the taxes paid and that deduction reduced the tax liability. The time for reporting depends on the method of accounting. Cash basis farmers report the income in the year following the year the credit is claimed.